To print this article, simply register or log in to Mondaq.com.
Unprecedented crises such as COVID-19 and dramatic climate change require boards to create a strong sense of social responsibility. Additionally, structures such as ESG (Environmental, Social and Governance) and SRI (Socially Responsible Investing) are forcing boards to rethink strategy and implement new objectives.
Corporate governance under pressure
More and more companies are emphasizing having a clear purpose. Many of Europe’s most prominent companies have conscientiously crafted the values and motivations that define them. Instilling a strong sense of social purpose within an organization has many powerful benefits. These include:
- Investor support and corporate purpose
Investor support for a company grows when there is a business case for why the company exists. This means not only prioritizing profits, but also taking into account other imperatives such as sustainable development. Prioritizing factors other than simple profit often indirectly enhances the company’s long-term profits.
- ESG criteria and sustainable business strategy
In France, the 2020 Institute for Responsible Capitalism (ICR) recommendations for investors also included the importance of reason for being. With a view to long-term investment. They want to know how companies interact with the ecosystem, especially in the current crisis. ESG criteria play an important role when it is known that these factors can determine a company’s focus on the environment, governance and social well-being. Therefore, in order to execute a quality corporate strategy, these signs should be considered as value generators. Boards should include these elements to ensure business sustainability.
Value creation report
ESG criteria and the company’s raison d’etre are all non-financial metrics. In other words, factors related to a company’s environmental, social and governance impacts. Non-financial reporting is a key point of the structure’s social responsibility policy towards society and company stakeholders. Today, the report document contains not only financial data, but also a range of key information aimed at following indicators such as diversity and his ESG initiatives. By implementing and monitoring these metrics, you can better manage your company’s strategy. These metrics are important tools for a company’s performance, allowing potential investors to drive its actions while providing greater transparency to stakeholders. In doing so, the company reflects its commitment to today’s issues and demonstrates its commitment to those around it.
Correlation between financial and non-financial indicators
When it comes to economic performance, it is necessary not to make a strict distinction between financial and non-financial measures. In fact, these two themes can be perfectly intertwined and create positive synergies in your company’s favor. This is especially true in the case of sustainable governance, where taking care to avoid corruption and lack of gender diversity impacts the company’s overall performance. Non-financial indicators can help reduce costs, for example by optimizing water and resource consumption and employing better logistics organisations. By integrating a quality approach to products, the bottom line is also increased. These metrics also help improve a company’s image and reputation. Stakeholders will be sensitive to efforts to reduce environmental impact and promote social initiative and better governance. Finally, these non-financial initiatives make the company attractive to investors as it limits the company’s financial risk due to poor environmental, social and governance controls.
The content of this article is intended to provide a general guide on the subject. You should seek professional advice for your particular situation.
Popular Articles: Canadian Company/Commercial Law